Risk of Political Disarray Stalks Thai Economy as Election Nears

Suttinee Yuvejwattana, Bloomberg News

Vehicles travel along an overpass in Bangkok, Thailand, on Tuesday, Feb. 12, 2019. Allies of Thailand's exiled former leader Thaksin Shinawatra are seeking to woo voters with a plan to revive economic growth after a failed bid to run King Maha Vajiralongkorn's sister as a prime minister candidate in next month's election. Photographer: Brent Lewin/Bloomberg
, Bloomberg

(Bloomberg) -- A high-speed train that glides from an expanded coastal airport handling 60 million passengers toward cavernous new stations in Bangkok. An infrastructure blitz that takes Thailand’s economy to new heights.

That’s the vision of the Thai military junta, which has ruled the Southeast Asian nation since seizing control in a coup in 2014, and is now looking to bring its leader, Prayuth Chan-Ocha, back as prime minister in the March 24 election.

Its economic plan rests on a 1.7 trillion baht ($54 billion) spending push to revive competitiveness in an economy hamstrung by depressed business confidence and investment. Growth has lagged peers in the region, productivity has weakened and companies have been reluctant to invest in an environment of trade tensions and political uncertainty.

The return of democracy comes with its own risks: a possible messy exit from five years of repressive military rule that is clouding the economic outlook.

Thailand’s establishment elites have dueled for power with the populist alliance of former premier Thaksin Shinawatra for over a decade, a fault line that could bring gridlock to the next parliament. He or his supporters prevailed in each election since 2001, only to be unseated by the military or the courts.

The instability has weighed on competitiveness and investment, both of which the junta has struggled to turn around since taking power.

“Improving national competitiveness is super urgent,” said Somprawin Manprasert, the chief economist at Bank of Ayudhya Pcl, a Thai unit of Mitsubishi UFJ Financial Group. “Thailand can ill-afford another period of lagging behind from political disorder. I believe we’ve bottomed out as people realize we need to improve productivity.”

Thailand has dropped 10 places on the World Economic Forum’s global competitiveness index since 2007 -- the biggest decline among Southeast Asia’s top economies -- to rank 38th out of 140 countries last year. The index measures everything from the openness of the economy and quality of infrastructure to the strength of institutions and innovation.

Investment as a share of gross domestic product has also been steadily sliding over the years, capping the economy’s expansion. Growth is expected to trail the average for Southeast Asia for a seventh year, reaching 3.9 percent in 2019 compared with 5.2 percent for the region, International Monetary Fund data shows.

Junta leader Prayuth -- who deposed an elected administration in 2014 -- made the so-called $54 billion Eastern Economic Corridor project the centerpiece of his push to close the economic gap.

It calls for new transport infrastructure, businesses and skills by 2021 across an already-industrialized part of the eastern seaboard dotted with traditional automotive and electronics-parts exporters.

Prayuth has cut red tape, making Thailand one of the 10 most improved nations in the World Bank’s Doing Business 2018 rankings as it vies with neighbors such as Vietnam for investment.

He is now seeking to return as premier with the help of a junta-appointed 250-member Senate, which will vote on the prime minister along with the 500-seat elected lower house. However, the main opposition Pheu Thai is on course to be the biggest party in the lower house, and opposes the continuing influence of the military in politics. The party is popular among the rural poor and linked to Thaksin, who now lives in exile.

Tension spiked earlier this month after a court dissolved another Thaksin-linked opposition party, damaging the election strategy of his alliance. The ruling evoked memories of the bloody street protests triggered when Thaksin-allied parties were previously broken up.

Unsettled foreign investors have already pulled out a net $700 million from Thai stock and bond markets so far this year amid the political intrigue, which is coming at the same time as a prolonged surge in the currency weighs on tourism and exports, the key drivers of the economy.

Aging Workforce

Analysts at United Overseas Bank Ltd. and Standard Chartered Plc see the possibility of a coalition government after the March 24 election, though the likely composition, leader and durability of this kind of arrangement remains unclear.

Whoever takes power though will have to tackle a key long-term risk facing the economy, which will weigh on its competitiveness: how to boost skills and productivity in an aging workforce.

A new government may focus more on wooing rural voters than investing in high-skilled areas, which would end up encouraging farmers to stay in low productivity jobs, said Gareth Leather, an economist at Capital Economics Ltd. in London.

“Thailand’s upcoming election will do little to improve the economic outlook,” he said. “Whoever wins, the shift towards economic populism is likely to continue, delaying reforms needed to raise productivity growth and deal with the worsening demographic outlook.”